Through googling, I think I know the answer to this but am not 100% sure and cannot find the definitive answer anywhere, so I'd be grateful for advice from those that know a lot more about payroll than me.
Employee has opted out of auto-enrolment because they have their own personal pension scheme, and have requested that the company makes employer contributions to the personal scheme instead.
The pension scheme is happy to accept employer's contributions and all relevant paperwork has been completed.
The payroll department thinks the employer's pension contributions (and bizarrely the employee's personal pension contributions) should be shown on the payslip. That's not right is it? There is no Tax or NI benefit on the employee and it is my understanding that employer's pension contributions paid in this way don't even have to be reported to HMRC.
I can see there might be a case for saying that a salary sacrifice arrangement is in place - but that would just be a case of showing additional salary on the payslip purely to show it being sacrificed and being deducted again. Is there a need to do that?
Should this be going anywhere near the payroll system at all?
Any help greatly appreciated.
Replies (20)
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How can the employer not show such a pension contribution on the payslip?
It's a cost to the employer and it's a benefit to the employee.
It's not anything to do with auto enrolment.
If these are actually employer's contributions to the employee's scheme and evidenced as that by the relevant paperwork (as opposed to the employer making the employee's contribution to their own scheme) then I wouldn't be putting them anywhere near the payroll.
"Employee has opted out of auto-enrolment .. and have requested that the company makes employer contributions to the personal scheme instead".
FWIW the company was under no obligation to agree to this request; they could have simply said "it's AE or nothing" (subject to their own employment T&Cs).
However, I can't work out why you have a problem with any of this "going anywhere near the Payroll system" ... perhaps you could elucidate?
As peter indicates, the ER pension contribution is a cost of employment - which I would always expect to be shown on the payslip (and indeed processed through payroll).
From the employer perspective it assists in accounting for costs of employment - and from the HR perspective it helps to portray the total 'benefits package' on the payslip.
You then move on to say "The payroll department thinks .. bizarrely the employee's personal pension contributions should be shown on the payslip."
Again, why do you think this is bizarre if the EE pension contribs are being deducted from her/his total remuneration (whether under RAS or NPA)?
Yes, whilst AE my paylips show both ER and EE and helpfully show total year to date re each, so doing my tax return is easy as I just need to retain my March payslip to get the EE figure to submit( so that I can get HR relief re same)
The only difference with a PP from AE is that it is a different payment recipient re each.
If this was not the case I would be wading through 12 months payslips to calculate the figure to claim each year (at least with my SIPP HL gives me it on their screen so I do not have to wade through all my bank statements for the year)
Ah, well in that case let's be generous and say that the 'payroll department' has either misunderstood the question or miscommunicated their answer ... much like this thread!
Payments made by an employee for their own personal use, after receiving their net pay, of course have absolutely NOTHING to do with payroll. As I say further down - as per weekly shopping or personal petrol etc
The key is that anything representing part of the remuneration package (which definitely DOES include ER contribs) goes through Payroll and on to Payslip.
I think the crux of this is that they don't need to be on the payslips but it doesn't matter if they are included.
As an employer contribution they wouldn't be needed by the employee for SATR as they wouldn't get any higher rate relief on them.
They are not part of auto-enrolment so are not necessarily dependent on the salary. Of course they will be reported as employer pension contributions in the accounts but they don't *have* to be included on the payslip any more than any other random bit of information would be (eg some times middle names are included, some times employer PAYE ref number is included - it's not wrong to put these on there but they are not required to be included).
Based on tjhe opening post I see no reason at all for this to find its way to payroll
HR should know that Employer is making a contribution
Contribution by employee to his own pension scheme has nothing to do with this employer
Why do people want to make life difficult?
"Contribution by employee to his own pension scheme has nothing to do with this employer" ... but we don't know that from OP.
It might be paid by employee outside of payroll (just like buying the weekly food) - but if it is the EE component of AE (which is what OP appears to indicate) then it should be paid via payroll (if only to assist AE reporting), and MUST be shown on the payslip IF it is a deduction from contractual pay (irrespective of whether taken from Gross or Net Pay).
Not sure why you think any of this is 'making life difficult'. Any decent Payroll software handles this simply - leaving you with an easier life in terms of HMRC and AE (TPR) and the Pension scheme ... as well as being considered best practice in both HR and Payroll professions.
With regard to EE contributions, I saw your clarification above and appended my response.
But when you say the "only thing that has happened is that the employee has asked the employer to make employer contributions to their personal pension" you make it sound non-contractual.
So are you saying employer can change their mind (cease making contributions) whenever they like AND without the employee needing to be compensated for this drop in 'remuneration'?
If so, that's a strange arrangement (and trusting employee). If not why do you have a problem with having all elements of the remuneration package go through Payroll (given that it's cleaner and less work in the long run)?
I don’t see the problem either way - including anything on payslips that doesn’t need to be there and needs to be collated deffo sounds like extra work for zero gain - the info will exist internally for necessary reasons anyway - I see no compelling logic or reason to have to be forced to add them on.
If there is a reasonable element of trust between employee and employer I think employer would think twice before trying to screw over employee - at worst all the employee needs to do is wait till they are re Enrolled if that happens - at the end of the day the employer is doing them a favour here so it’s unlikely to be an employer who would do a Graeme souness or joey Barton and do them over - oh is that the proper footy about to start.
Employee does not even need to wait for reenrolement is my understanding and as an employer I agreed with one employee just to top up his salary when he chose not to be part of the scheme
His idea not mine
Correct on the first point.
On the second point ... was very glad to see your final 4 words, as TPR are out there actively searching for examples of 'inducement' that they can penalise.
[BTW I'm sure you know, there can't be ANY connection between employee's AE opt-out and his salary increase. So that leaves you with the (very slight) risk that he can opt back in to AE (or be re-enrolled in due course) - leaving you stuck with the higher salary (unlike Salary Sacrifice) on top].
FWIW I wouldn't put this through the payroll either. Difficult enough getting hours out of clients every month let alone company pension contributions!
I thought the employer was making a payment to the employee's personal pension. If it was an auto enrolment payment it would go through the payroll and if it's an employer's pension scheme so why not if it's not auto enrolment or an employer's pension scheme?
In my experience Pension, AE or otherwise, is usually a % of the employees salary
Therefore it is usual to calculate it through the payroll system.
Also the ER pension may be x% provided the employee contributes y%
It is clearer for all if the pension is shown on the payslip
As others have already stated, if the employee is genuinly paying personal contributions themselves out of take home pay it is not relevant to the employer.
As usual, we don't have all of the facts so are making educated guesses